CONFIDENTIAL
SUMMARY OF WORLD BANK REPORT ON HONG KONG'S ECONOMIC POLICY
1.
CONCLUSIONS
Monetary Policy and Exchange Rate: The Establishment of the Monetary Affairs Branch is only the first step towards setting up a central bank or 'monetary authority'. It is needed to control the Exchange Rate and the domestic money supply.
Fiscal Policy: While welcoming the end of the old procyclical expenditure policy the corresponding procyclical revenue policy (necessary to maintain a 'balanced budget') "has yet to be adjusted"; the revenue policy undoes the benefits of the expenditure policy. The existing tax system is regressive, has too narrow a base, and is too easily evaded.
2.
The Banking Sector: The existing (1964) Banking Ordinance was designed for a monetary system that was part of the Sterling Exchange Area. Since the abolition of the SEA (in 1974) a new system has become essential, centering around the new monetary authority. Reading Chapter 5 (particularly para 5.16) one gets the impression that the World Bank team was highly suspicious of the relationship between the Hong Kong Government and the Hong Kong and Shanghai Bank.
3. Industrial Economic Policy: There could be monopolies in certain domestic and importing industries ("eg banking, transportation facilities ...") and "monopsony in factor markets (eg collusion among employers in determining wages)". Land and water, not capital or labour, are the scarcest factors of production. To increase real wages labour productivity must grow, which requires a big education and training programme.
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RECOMMENDATIONS:
(1)
Reverse existing way of planning public finance taxes and revenues as immutable.
don't regard
(2) Include under the heading 'public expenditure' all public
guaranteed debt (such as the MTR).
(3) Abandon procyclical revenue policy and adopt countercyclical one instead.
(4) Increase total public expenditure to 22-23% of GDP by 1980.
(5)
Revise the tax system drastically, separating personal from corporate income and taxing income received in Hong Kong.
is a lender of last supplies domestic
(6) Set up a central bank which (a) manages the exchange rate, (b) controls the domestic money supply, (c) resort, (a) is the Government's banker, (e) liquid assets, (f) obtains revenue and (g) regulates the commercial banks and all financial markets. Only domestic liquid assets should form the 'reserve money'.
COMPTINED TAT
/(7)